I know that no one can give legal advice

Broompilot · Jul 16, 2005

But.... I have been told and believed it to be true that a Corporation will not protect you 100% from loosing your personal assets, so I choose to be a Solo Prop..

I meet with an Attorney earlier this week. He wants me ASAP to get my truck into my Corp. ( I still have my corp standing from my previous business) I told him what I thought was correct info. He completely dissagreed, and million coverage does not go to far when it involves a truck was his response so I would be liable for anything over one Million the way it is today.

My question or point being is there any proof that a corp does not provide protection. Any history at all would be appriciated as I have not and do not want to change over if there is any truth that I would be waisting my time and $ by changing this truck that I own into my corporation.

Thanks.

terryandrene · Jul 16, 2005

Broom:

As an officer of a corp already, you know all the obvious benefits. The only negative I can think of is also a positive. If you, the officer of the corp., are involved in an incident for which you are considered negligent, your personal, as well as corporation assets may be exposed. For example, if your truck is in an accident caused by your employee driver who violated corp regulations and/or the law, your personal assets would likely be shielded from successful litigation by an injured party. If you, as an officer of the corp., are the negligent driver, your assets are up for grabs. Listen to your attorney, not me.

Terry

Broompilot · Jul 16, 2005

That makes a little more sense still trying and no one can make that decision but me weighing the options as to why I should incorporate my truck. Good idea I will toss that one his way and wait for the next bill.

leymas · Jul 16, 2005

What about being a LLC?

Broompilot · Jul 16, 2005

Its all the same in a liabilty case, Inc. LLC partnership, Ltd. Actually you may be more liabile with an LLC than a corp. Think about it your all gona get sued and he has the most net worth looses the most or at least first.

RichM · Jul 16, 2005

I have been a S Corp for over 12 years. The Tax savings are well worth it.I was audited by the IRS in 1996 and came out clean as a whistle.. As too liability I am a Officer of the Corp,50% shareholder,on the Board of Directors\and also an Employee of the Corp.

There is a real gray area as too who is responsible in the case of an accident and who is liable for damages,you as an employee or the Corp you work for. I have had conflicting advice from several attorneys. Some say, If you are the employee of your own Corp your personal assets may be taken. Other say no,only the Corps Assets can be taken.

Probably depends on the Judge and Jury. An S Corp is not a bad way to go. Lots of legimate write off. Example , You can pass a a Corporate resolution stating that 100%of all employees. ( you and your wife) health costs are assumed by the Corp. This is a legimate write off on the Corp return.

One other thing,you do not pay additional taxes on a S Corp.The profit or loss is passed on to the shareholders,which in most cases is you and your wife.

Another minor point is that after a few years as A S Corp everyone in the world wants to lend you money.

If anyone wants to talk to me directly about this PM me with your phone number and I will be happy to talk to you..

guest · Jul 16, 2005

The "losing your home and all your stuff" scenarios are a bit overdone in my opinion. As a practical matter, most individuals are what you would call "judgment proof." What that means is that when opposing counsel evaluates the merits of a potential plaintiff's case against you he or she will consider the probability of actually recovering any money is a judgment against you is obtained. A plaintiff's attorney will assume you will declare bankruptcy in the event that a large judgment is obtained against you and will consider what could be recovered if that were to happen. In that case, retirement accounts and in some states many pieces of personal property and real estate are exempt from the claims of creditors.

In short, small business people with business assets consisting primarily of a truck are not generally an appealing target for plaintiff's attorneys. There are, of course, nightmare scenarios where someone could lose everything, but it is uncommon. I think that the knee jerk reaction of saying set up a corporation or an LLC is not good advice in all cases. What type of law does the attorney you are consulting practice? If he is a general practitioner, I promise you he does not fully appreciate all of the nuances of protecting the assets of a small business person in the case of a lawsuit.

Really the best person to talk to would be a real sleazy plaintiff's attorney and just ask him if you would be an appealing target for a lawsuit and what you might do to be a less appealing target. What the sleazy lawyer tells you is what you should do. If he says that having the truck in the name of the corporation would make it hrder for him to sue you and recover, then you ought to do it.

I have seen asset protection plans that generated excellent legal fees for the attorneys who prepared them, and I can't say any of it was wrong, it was just complete overkill when considering the probability of the events that the asset protection plans were designed to protect against.

Just make sure you play out the actual scenarios that you are trying to protect yourself against, and consider what would actually happen if you were sued and did not have a corporation or LLC in place. Theoretically, there is a high level of exposure, but the practical exposure is much smaller or non-existent for many people.

tec1959 · Jul 16, 2005

Broom:

Hi what about an umbrellia Insurance policy for about $5,000,000.Would that not cover you if you had and accident? I think that polices like that are fairly reasonable.I also think that in todays world you would need both extra Insurance and some type of corp.

Tec1959 Just my 2 cents....

greg334 · Jul 16, 2005

Broom:

Terryandrene and friscomike are both right.

My advice: It is far simpler to incorporate then it is to be hit with a law suit.

I worked in a highly regulated industry and had to learn about accounting and corporation laws to do my job. There are a lot of loop holes that are in these laws and not every lawyer knows them. friscomike said “Really the best person to talk to would be a real sleazy plaintiff's attorney” which is really good advice and it may reassure you that you are doing the right thing. Chances are you don’t have to worry about personal assets unless that total over 7 digits left of the decimal point.

On the other hand, a law like Sarbanes-Oxley is a tool where the feds can take a lot from you if you cook the books. There is a lot to be said about the post Enron world we live in today.

It is a simple procedure to create and incorporate a business here in Michigan, I think it took me 30 minutes to fill everything out. I have yet to have a lawyer do anything except look over complicated paper work to submit. Sorry you lawyers out there. Everything that has to be submitted, filed or whatever for the corporation I do or hand to my accountant, who is a real corporate accountant that knows his stuff, to do.

LLC/S corp/C corp all matters what you want to do and how much paper work you like. I prefer S corps but right now mine is a C for reasons I won’t go into.

RichM mentioned the healthcare issue, which really works well with a corporation. I have a cap of $10K opposed to 100% but I also have a catastrophic insurance policy that takes over for major problems.

ATeam · Jul 17, 2005

I'm not offering advice, just sharing what we did. We run as a sole proprietorship and will continue to do so as owner operators when our new truck is purchased. As a one-truck entity with us as the corporate officers and drivers, we do not find the liability protection corporations supposedy provide would be there for us if we incorporated. On the other hand, if we were running more than one truck with other drivers in them, we'd incorporate in a heartbeat precicely for the liability protection incorporation provides.

Our decision was made after face-to-face conslutation with our CPA, who is with a firm that specializes in owner/operator tax services and serves thousands of clients. Also included in the decision are my wife's insights (she is an attorney) and mine (financial planner for eleven years in a previous career).

Many (most) lawyers that get paid to help people form corporate entities advise people to form corporate entities. That fact should be considered along with the advice the advising attorney gives. Remember, for every attorney that argues one point of view, another of equal intelligence, ability, and passion can be found to argue the opposite.

raceman · Jul 17, 2005

No advice from here either but I agree with ATeam. I too was advised to go as a sole prop. This was from a Lawyer and CPA. I was told when I had drivers and more than one truck I should have at least went LLC but that is in the past so I am sticking with S.P. status. Good luck with ever you do but follow legal advice if you ahve a good advisor. Who knows how you figure that part out.

Raceman
OTR O/O

highway star · Jul 17, 2005

I, too, think Ateam has it right. If you are driving the truck, you are personally responsible for its safe operation and would, therefore, be personably liable.

RichM · Jul 17, 2005

Here are some other advantages that I have by being a S Corp.

There are 2 types of income. Earned income and Ordinary Income. Earned income is what you pay FICA aka as social security taxes on. Ordinary income can be bank interest,rental income ,stock dividends etc.

I pay myself and wife a very small salary each month. This salary is our earned income which we pay FICA taxes on.We take other funds as a
monthly distribution from the company which we do not have to pay SS
taxes on, thus savings some tax money. Based on your age this may not be a wise thing to do as it can affect your Social Security payment down the road.

Other things to legimately write off are ,once a year you need to have a offical Corporation meeting,this meeting can be held at a resort and one days stay plus travel can be written off. My
annual meeting this year will take place in Key West Fl.

It is also easier to justify a home office expense. My HP Computer was bought by the Corp,my personal auto is a company car and the list goes on.

BTW my tax guy is an ex IRS Agent ,knows his stuff and believes in S Corp all the way. Each to his own..

guest · Jul 17, 2005

Another benefit of an S-corp is that an S-corp can sponsor employee benefit plans such as group health plans, flexible spending account plans, dependent care reimbursement plans and disability income plans, which provide benefits on a pre-tax basis and can be paid for with pre-tax dollars.

Be careful, though, there are lots of pitfalls for employee benefit plans sponsored by small businesses. I'm not saying that to keep anyone from doing it, it is just good to have someone helping you who knows what they are doing. A good and experienced CPA can be a pretty good person to help with employee benefit plans. The main thing is to make sure that if an annual Form 5500 is required to be filed with the IRS or DOL for an employee benefit plan that it is filed in a timely manner. If a filing is required, the form is only a few pages for each plan for most small businesses. When I say "plan" I mean each type of benefit that is offered. For example, if you have health insurance, that is one plan. If you have disability insurance that is another plan.

There is the potential for a lot of savings in taxes by using an S-corp to provide employee benefits on a pre-tax basis.